Tax Tip of the Week | No. 360 | It's Not Personal, It's Your Business

Tax Tip of the Week | June 22, 2016 | No. 360 | It's Not Personal, It's Your Business

You may think of your business as an extension of yourself, especially if you're a sole proprietor or the only shareholder. But keeping the two of you separate — particularly in the area of finances — is a tax-smart move. One reason: In addition to making sure the expenses you pay are ordinary and necessary, you need adequate records to support them so you can claim a deduction on your business return. Intermingling personal and business finances may lead to disallowed deductions.Here are three ways to separate your personal and business life:Set up a bookkeeping system. In general, federal income tax law does not specify a particular type of recordkeeping system. Your accounting records can be as simple as a logbook with pockets to store receipts. The main requirement is to track your expenses in a manner that provides a complete and accurate account of your business activities.Open a business bank account. Having a separate bank account can help put to rest the question of whether you are running a business or indulging in a hobby. Why? To open a business account, financial institutions usually require employer identification numbers, business licenses, certificates of incorporation, and other legal documents that signify genuine business activity.Take a salary.  (Not an option if you are a sole proprietor) Besides providing a clear separation between your personal and business expenses, paying yourself a reasonable wage helps you maintain a budget. Establishing a distinction is especially important for corporations. In some cases, amounts you withdraw from your corporation for your personal benefit can be considered dividends instead of a deductible expense.If you need help establishing or organizing your business records, please do not hesitate to contact our office.You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW...until next week.